The U.S. has reopened its borders to vaccinated international travelers from 33 countries, a development expected to have a significant impact on real estate.
Throughout the Covid-19 pandemic, investment from foreign buyers in U.S. real estate has been down due to the difficulty of travel. A report from the National Association of Realtors found that from April 2020 to March 2021, the number of residential properties purchased by foreign investors declined by 31%, compared to the previous 12-month period.
“Home buying by foreigners just tanked,” said Lawrence Yun, chief economist with the National Association of Realtors. “It’s such an important expenditure, and people want to see homes in person before making a purchase. If they can’t get into the country, they’ll just postpone the decision. But now we anticipate that foreign buying is going to pick back up here in the U.S.”
This expected influx of investors from overseas may have domestic buyers wondering whether they’re in for even fiercer competition. In many markets, inventory is already low and demand high, contributing to a 13% increase in home prices since October 2020 nationwide.
Cities like Miami, New York, Seattle, San Francisco and Los Angeles have long been prime destinations for international buyers, Mr. Yun said, so domestic buyers in these markets may soon face a tougher time as foreigners return. Local buyers should consider acting quickly in order to avoid intensifying competition and price appreciation.
“We are in a high-demand period with low inventory. The return of international buyers will only be a further positive factor in New York City’s robust real estate market,” said Parisa Afkhami, an agent with Warburg Realty in New York. “Given the low inventory, low interest rates and influx of new buyers to the marketplace, it seems to be a good time to move quickly.”
The Impact of International Buyers Returning
After a flurry of buying activity this spring and summer that led to bidding wars and price appreciation, there are indications that the U.S. housing market is cooling off. In April, for instance, Realtor.com found that prices on active listings were up by 17.2% compared to the previous year; in October, year-over-year appreciation had dipped to 8.6%.
It’s still a seller’s market, though, and this slowdown could vanish in certain cities once more international buyers enter the fray.
“The market appears to be calming down a bit, and some domestic buyers may sense that there is less competition and they can negotiate for better prices,” Mr. Yun said. “Foreign buyers suddenly appearing could throw that off. They tend to buy all cash, which is more appealing from a seller’s perspective and raises challenges for domestic buyers.”
Investors from overseas are likely to heighten the demand for particular types of housing product. Domestic buyers seeking luxury new developments with plentiful amenities, for instance, may face increasing competition from foreign buyers, who purchase these units as pied-a-terres and investments due to their good rental prospects.
“Foreign buyers tend to gravitate toward new developments in New York,” said Pierre Debbas, managing partner of Romer Debbas LLP. “We’ve had a glut of new inventory in the luxury condo space, and because condos have a level of negotiability and travel restrictions are lifting, I would anticipate demand increasing and money coming in from abroad.”
New York City’s hot rental market and the prevalence of deals for high-end new development compared to other major cities are making it especially attractive to investors from abroad. Interested buyers should note, though, that since the end of lockdown, interest in luxury housing has surged, and 2021 has seen the largest number of luxury contracts signed of any year on record.
“New York real estate prices still are low compared to other world capitals such as London, Hong Kong and San Francisco,” Ms. Afkhami said. “We have already seen an uptick in activity including inquiries, FaceTime showings and upcoming appointments in the month ahead.”
Strategies for Domestic Buyers
With overseas investors already arranging to visit properties in hot U.S. markets, domestic buyers in these cities must start strategizing for how they will stand out amid a renewal in intense competition.
Many domestic buyers have already been house hunting for some time, and their familiarity with a given market could present an advantage over international buyers who are just now entering the fray. These overseas buyers may need to take more time to consider their options, whereas locals are better prepared to make an offer right away.
“Domestic buyers are ahead of the curve, because they’ve had time to shop over the last few months,” said Ethan Assouline, a broker with Compass in New York. “Now, if you see something you like, you can jump on it.”
Domestic buyers should also be aware of the type of housing that tends to draw foreign investors and strategize accordingly.
“Foreign buyers tend to go into condos more, relatively speaking,” Mr. Yun said. “From their perspective, it’s a more hassle-free investment.”
These investors are also drawn to major cities like New York and San Francisco. Domestic buyers seeking new developments in these markets, then, have all the more reason to act quickly. On the other hand, by opting for different kinds of housing products, such as co-op units in New York, or investing in smaller cities, they can avoid some of the renewed competition coming from international buyers.
Where there’s fierce competition from overseas, domestic buyers face significant challenges: Foreign investors are more likely to make all-cash offers and are willing to waive contingencies.
“In an upward market, cash and non-contingent deals are key, and sellers will give that priority,” Mr. Assouline said.
But even in hot markets, buyers may be able to identify pockets of relative affordability, where they are less likely to face bidding wars. In Northern California, for instance, the Napa region currently has more inventory than neighboring counties, said Jeff Samuels, a broker with the Northern California office of The Agency.There, buyers may expect to encounter less competition and even the possibility of discounts.
“We’re already in a moment where cash is king, so the domestic buyer might want to get ahead of it if more investors are coming in,” Mr. Samuels said. “If you have some flexibility and want to know where your best opportunities might be, find a realtor who is paying attention to supply and demand, and knows who has control now and how much control they have.”
By: Alanna Shubach I Mansion Global I November 2021